Analyzing Bottoms

It's important to take a look at our last 2 boom gone bust market bottoms: the 2003 post Internet boom bottom, and 1987's Bloody Monday. Below is a chart of the S&P from 1996 to Present. This chart is a perfect double top and it makes sense we recently found support at the 800 level (the same level of the 2003 market bottom).



Now the question lies, are we going higher, are we in a trading range, or are we going lower. Let's take a closer look at the market bottom of 2003.



The market bottom of 2003 was a 1 year process. Notice the market failed several times to cross and stay above the 20 day moving average (blue line) and 50 day moving average (red line) and never crossed above the 200 day moving average (black line) until the bottom was in place and we were moving higher. Additionally, the 50 day ma. and 20 day ma. crossed 4 times before the market started moving higher.

Lets look at our current market to determine where we are and if we have "hit the bottom".



Notice we have only been in this process for 3 months, and we have only crossed the 50 day moving average for 3 days. If you can find it, look at the 200 day moving average - it's nowhere in sight. Notice the 50 day ma. and 20 day ma. have not converged once. I need to see some sort of battle between buyers and sellers for the 50 day ma., like in 2003, and at least 1 convergence of the 50 day ma. and 20 day ma. before even beginning to accept our market has bottomed.

Now lets look at the 1987 bottom.



The 1987 bottom is completely different from 2003. Here the market fell quick, and recovered quick. Notice the 20 day ma. and 50 day ma. converged quickly as the market lifted.

I think it is easy to rule out a bottom like 1987. As of today, the 50 day ma. and the 20 day ma. have yet to converge even once, and we have yet to see a battle of buyers and sellers on the 50 day ma. Until I see more positive action from the bulls, i will continue to to be bearish.